Is reverse mortgage interest deductible

[MargaretL · Accepted solution]

It is not - unless you paid off the loan in full.

Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full. Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt.

However, for reverse mortgages, you can deduct amounts you paid for qualified mortgage insurance. The insurance must be in connection with home acquisition debt- the deduction is not available for the portion relating to other types of indebtedness, such as home equity indebtedness. Also, the insurance contract must have issued after 2006.

For more information, please refer to IRS publication 936, page 8.

[robertballou2622]

It is still not clear to me that any of the Mortgage Interest or MIP I accrued on my reverse mortage is deductible now that I've sold my house. I received a Form 1098 from the lender showing the total amount of interest received from the payer in Box #1 and MIP premiums in Box #5. If any of this is deductible, how many years can I spread this deduction out?

[robertballou2622]

I'm still waiting for an answer to my question about number of years this significant amount (over $16,450) can be carried forward, and I would like to know what is meant by "home equity indebtedness."Seems like over $90,500 in interest deduction is a lot to kiss goodbye.

[nlarsonaz]

I have the same question.  is there some guidance that can be given?  walking through TT there is no mention of where to enter the interest and/or MIP for a Reverse Mortgage - only a HELC or regular mortgage.  This should be addressed in TT due to the number of Reverse mortgages and the potential of payoff and sale of a home that has a Reverse mortgage

[Anonymous]

The relevant IRS Publication is 936. Page 5 reads to me as a "no" - not deductible

Reverse mortgages.

A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. With a reverse mortgage, you retain title to your home. Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. Because reverse mortgages are considered loan advances and not income, the amount you receive isn't taxable. Any interest (including original issue discount) accrued on a reverse mortgage is considered home equity debt and isn’t deductible.

[NewRicky]

What if the reverse mortgage is for purchase of new home and one pays the interest on the reverse mortgage on a monthly basis? Would this be considered payment acquisition debt and therefore be considered tax deductible? My guess is that the mortgage company would have to issue a 1098 for interest paid in that year, and that it would be tax deductible for up to a limit of $750k over the lifetime of the loan, right?

[Critter]

Are you sure you have a reverse mortgage and not an Equity Loan (HELOC) ?  Normally there are no payments due on a reverse mortgage. 

Reverse mortgages are paid off in single payments, not in installments, when they're due. Your reverse mortgage lender doesn't expect its loan to be paid off until you actually do move out of or sell your home, or die.

Can a Relative Pay Off a Reverse Mortgage? | Home Guides ...

https://homeguides.sfgate.com › can-relative-pay-off-reverse-mortgage-58543

[NewRicky]

Yes my loan is a reverse mortgage, but I am going to voluntarily pay the interest each month to keep the loan balance from growing. However, because they are voluntary payments, I can stop paying them when I want ie. if we have a decrease in income due to illness or death of one of us. Also, because the payments will add to a line of credit I can borrow the money back if times get tough or I need to make expensive repairs at some point.

Thanks for your response.

[Critter]

Interesting ... well if you get a 1098 from the mortgage company showing the interest paid then according to the tracking rules if you used it for the purchase of a primary residence I guess it could be deductible ... however if the home you have the loan on is no longer homesteaded as your primary residence this will make the outstanding balance due immediately.   Seems like a slippery slope. 

[NewRicky]

Did you receive this? NewRicky

[NewRicky]

Yes, thanks.

[huiel]

How do I indicate a reverse mortgage in Turbo Tax?  I only see options to designate the mortgage as a refinance or a HELOC.  How do I designate a HECM???

[Critter]

A reverse mortgage is NOT entered on an income tax return since you are not making payments on the loan.  You cannot deduct the accruing interest on the loan.  

[huiel]

I did not pay it off, but I DID make voluntary payments in 2019 ... so the lender issued a 1098.

And in order to report that 1098, I need to designate this loan as an HECM. 

Which brings me back to my initial question of how I do that.